Market hinges on three factors

The market will be influenced by three major factors – the result of the European Summit last week, institutional investment and window dressing.

Last week, the European Central Bank cut the policy rate for the second time this year, by a quarter percentage point to 1 per cent. We expect another cut in the first half. Per the European Summit from December 8-9, we don't expect an absolute measure to end the eurozone crisis, but there could be measures to stem the crisis. For example, the European Central Bank may come up with an additional ¤200 billion so that the International Monetary Fund can re-lend it to liquidity-stricken European banks. Such loan maturity could last 36 months, under some conditions. If this is what the leaders approved on December 9, it could put some pressure on the Thai market this week.

Normally, institutional demand increases in December. During 2006-10, average net-buys by local institutional investors in December reached Bt12.6 billion – equivalent to 90 per cent of the new purchases by long-term equity funds in the month. For this year, we still expect that net-buys from LTFs would amount to Bt10 billion, close to the average of the last five years. So far this year, as of December 8, net LTF buys were only Bt38 million. The figure should increase in the remaining week and should push up the SET Index. 

Local and foreign funds are window dressing to impress investors with satisfactory returns. This should push up share prices when the end of the accounting year is approaching. Window dressing is very likely as the SET is now near its 2010 closing, at 1,032.76 points. More buys would push up the index and this would push up funds' returns. 

Combined with LTF/RMF funds, the index could rise. 

We believe that the downside risk this week would be limited with the resistance line at 1,025-1,030, thanks to institutional demand. Till the end of this year, the index should not fall below 1,050-1,070. 

Investors should focus on stocks with a trading gap wide enough for profit taking. Outperforming the market could be those in the property sector like RAIMON, SPALI, SIRI and SC, commercial banks like BBL and KBANK, petrochemical stocks like PTTGC, automobile like SAT, and construction materials like SCC. 

 

Chanpen Sirithanarattanakul

Head of Research

DBS Vickers Securities (Thailand)

 

The Thai market continued to trend up over the last two weeks and strongly outperformed regional peers. This was despite a series of GDP downgrades by several agencies. 

On the external front, the ECB cut the policy rate by 25bps to 1.0 per cent as widely expected, and also reduced the reserve ratio from 2 per cent to 1 per cent. It also extended the tenure of its unlimited liquidity operations at policy rate to three years from 13 months earlier, and expanded the range of acceptable collateral to ease the liquidity crunch at smaller banks. Technically, this should cap money market rates at the policy rate (1 per cent) and prevent bond yields from rising further.

Europe’s debt crisis and the global economic slowdown will remain key risks for the market in the near term.

DBS has cut Thailand’s GDP growth forecast for this year to 1.0 per cent from 2.5 per cent earlier following weaker-than-expected 3Q11 GDP data and the worse-than-expected flood impact. We are keeping 2012F GDP growth at 5.0 per cent, but actual growth could swing either way depending on how the European debt crisis and domestic reconstruction spending pan out. Reconstruction expenditures, and manufacturers possibly being able to recoup some lost production by utilising spare capacity, could help to prop up the growth outlook. Our rate trajectory has only one more 25bps cut in 1Q12 (from 3.25 per cent to 3.00 per cent), but there could be more cuts if the European crisis deepens, which is looking increasingly likely.

We recommend investors focus on domestic plays that will be able to participate in post-flood reconstruction and renovation activities, and those with company-specific drivers. Our top picks are Siam Cement (SCC), Sino-Thai Engineering & Construction (STEC), Toyo-Thai Engineering (TTCL), Hemaraj Land & Development (HEMRAJ) and Asian Property Development (AP).

 

Trinity Securities

 

The SET Index has already met our technical target of 1,051. This week we expect our SET range of 1,015-1,050 points. Our strategy is to continue taking profits in the banking and property sectors, but selective buy stocks with good sentimental news. We view that the SET’s support base will change and do not believe the January effect will occur but expect the market to rally around mid-January to March.

Our advice is to focus on stocks with upgraded earnings for the next year such as KSL, PHATRA, BH, TASCO and SAT. We still overweight construction stocks led by DCC, TASCO and DRT. KK and PHATRA get our buy rating too. KK will make a tender offer for all of PHATRA shares and delist. The swap ratio as a consideration to PHATRA’s shareholders who accept the tender offer is at the rate of one share of PHATRA for 0.9135 shares of KK. Trading KK and PHATRA.